Nepal Budget of 2014

On Sunday, July 13, 2014. Finance Minister Dr Ram Sharan Mahat read out the Budget for the fiscal year (FY) 2014 at the parliament. The budget text was short but it had many useful tables with data for anyone to verify what Dr Mahat had said in the parliament. The budget indicated that he was for liberalizing the economy and letting the private sector work rather than the government doing everything for the people but his partners in the governance the CPN-UML leaders must have forced him to include some of the programs on handouts. He had not been empathetic to the senior citizens but he allocated a huge sum of money for the retirement payments to the State employees. As usual, huge sums of money have set aside for the roads, energy development, education and health. Dr Mahat said in the budget speech that the country needed to have the eight percent economic growth for taking Nepal to a developing country defined by the UN by 2022. However, the budget has been only for the six percent economic growth. He also said that Kathmanduites would have power round the clock after three years, and water after two years. These might be the wishful thinking. He was set to amend a number of laws, rules and regulations to meet the need for development. He realized that the laws and rules had been obstructionists, and the State bureaucracy had been hurdle to the development.

Finance Minister Dr Mahat has said that Rs 618.10 billion is required for implementing the programs and the policies of the government. Out of the total budget, Rs 398.95 billion (64.50%) is for the general expenditure, Rs 116.76 (18.90%) is for the capital expenditure, and Rs 102.39 billion (16.60%) for supporting the financial sector (Article 251 of the budget speech). Rs 618.10 billion is slightly more than US$ 6.00 billion taking the exchange of Rs 100 to a dollar for simplicity.

Dr Mahat said in the article 252 how he would mobilize the resources. He said that the State revenue would be Rs 422.90 billion (68.42%); the principals and the interest the State receives would be Rs 1.00 billion (0.16%), foreign grant Rs 73.39 billion (11.87%), and finally the deficit Rs 120.81 billion (19.55%). He also said how the deficit would be met. Foreign loans would be Rs 49.53 billion (41.00% of the deficit), internal loan Rs 52.75 billion (43.66%), and savings of the FY 2013 Rs 18.53 billion (15.34%).

Dr Mahat has set-aside Rs 37.80 billion (6.12%) to the Home Ministry (Article 36) for security, and Rs 28.86 billion (4.67%) to the Defense Ministry for the bunker to barrack program; the military Act of 2006 would be amended (Article 241).

“Nepal Electricity Authority (NEA) will purchase surplus power from individual and firms if solar panel is installed on roof of the buildings in Kathmandu Valley and other urban areas having a generation capacity of more than one kilowatt. The power thus transacted will be calculated through a separate Net Metering System so as to make payment based on net power consumption” (Article 60). Is it possible that the NEA purchasing power in kilowatts?

Dr Mahat allocated Rs 12.62 billion (2.04%) to the power generation. This would generate 28 MW of hydropower, and 25 MW of solar energy making the total power production of 833 MW (Article 73). He also allocated Rs 13.55 billion (2.19%) for the power transmission. This would construct 275 km transmission lines in the coming year (Article 74).

Dr Mahat had set-aside Rs 26.00 billion (4.21%) for blacktopping 525 km roads, and for constructing 498 km gravel road, and 227 km new track opening. The center would implement this program. He also has set-aside Rs 8.96 billion (1.45%) for blacktopping 50 km roads, and for constructing 200 gravel roads, and 779 dirt roads in the coming year. The local governments would implement this program (Article 126). He also allocated Rs 1.20 (0.19%) billion for linking 815 villages so far not linked with the road networks, and Rs 2.25 billion (0.36%) for improving 55,000 km roads built at the local level (Article 147).

He also said that he allocated Rs 23.28 billion (3.77%) to the agricultural programs to be run by the Ministry of Agriculture (Article 87). He also allocated Rs 130 million (0.02%) to buy seven tons of the highbred seeds (Article 86), and Rs 1.78 billion (0.29%) to the agricultural research on increasing agricultural productivity (Article 83), and Rs 5.48 (0.89%) billion for the subsidy on 255,000 tons of fertilizers (Article 82).

The subsidy on the fertilizers would be not only the total waste of the national resources but also would create the shortage of fertilizers, as the cheap and high quality fertilizers would find the way to the adjoining Indian states. The officials of the concerned State agencies including the minister would make money out of it. Then, Nepalese farmers needed to go to the adjoining Indian towns to buy the low quality fertilizers at higher prices.

The following is one of the examples of the news of fertilizer shortage in Nepal. Darchula, July 14, 2014: in the Darchula district, farmers are facing shortage of fertilizers in the peak season of paddy plantation. According to the Agriculture Development Officer (ADO) Tika Ram Thapa, shortage of fertilizers has been, as the contractor Om Mahasani Dev Construction and Suppliers has failed to supply it on schedule. As per the contract, the supplier needed to provide the district with 2,300 quintals of fertilizers but the contractors had provided only 700 quintals so far, ADO Thapa said. Consequently, farmers needed to buy fertilizers from the neighboring Indian market. (Gorkhapatraonline.com, July 14, 2014)

The donor agencies had made tremendous efforts on eliminating the subsidy on fertilizers in 1990s and they succeeded in it but senior leader of CPN-UML Madhav Nepal as the prime minister in 2010 reinstated it. With the introduction of the subsidy on fertilizers, Nepalese farmers have been finding it harder to get the fertilizers at the time of planting seasons, as the fertilizers intended for the use in Nepal have gone to India for making money to the Nepalese officials including the concerned ministers: supply minister and agriculture minister.

Dr Mahat said that he had set-aside Rs 12.00 billion (1.94%) for creating surface irrigation systems for irrigating additional 4,500 hectares, and Rs 250 million for providing new irrigation systems for irrigating 600 hectares wherever surface and underground systems could not be built (Article 93). He also said that he allocated Rs 18.10 billion (2.93%) in total to the irrigation systems including the small and community irrigation system projects to be implemented by the local governments in the coming fiscal year (Article 96).

Dr Mahat allocated Rs 9.78 billion (1.58%) to the forest development including Rs 900 million for the recently created ‘Rastrapati Chureya-Tarai-Madhesh Conservation Committee’ for preserving the Chureya-Tarai-Madhesh area (Articles 101 & 102).

Stone companies complained that the government in the name of conservation of the Chureya-Tarai-Madhesh area had been for killing their businesses. They also said that the proper management of the stone extraction from this area was necessary rather than stopping it in the name of conservation, and prohibiting the exports of stones to the neighboring Indian States that would encourage the smuggling of stones. They also said that the State officials would make money helping the smuggling of stones to India causing untold damages to the Chureya-Tarai-Madhesh area.

Concerning the drinking water and sanitation, Dr Mahat said that he allocated Rs 5.03 billion (0.81%) for construction, improvement and expansion of drinking water projects to meet the national goal of providing all Nepalis with safe drinking water and sanitation by 2017 (Article 134). With such a little money in comparison to the huge infrastructures of drinking systems needed to create, whether Dr Mahat would be able to meet the national goal of providing all Nepalis with the safe drinking water and sanitation remains to be seen.

Dr Mahat allocated Rs 4.61 billion (0.75%) for completing the Melamchi Project and supplying the water to the Kathmandu Valley by mid April 2016 (Article 135). Kathmanduites particularly I were skeptical about having the water from the Melamchi River within the less than two years because the contractor had completed digging the tunnel six kilometers out of the 26 kilometers required for passing the water. Currently, the contractor had been digging only 200 meters of the tunnel a month. It would be miracle of the water coming from the Melamchi River to the Kathmandu Valley so soon if the contractor were to keep the same pace of constructing the tunnel.

Dr Mahat said that a minimum of Rs 50 million would be provided to each electoral constituency for building infrastructures through different agencies; he allocated Rs 10 million to each constituency for implementing the infrastructure projects selected by honorable members of parliament with the people’s participation; and he added Rs 0.5 million to the Rs 1.00 million each member of parliament had been receiving for development of each constituency through the ‘Constituent Development Program’ (Article 141).

The NC members of parliament had been asking for Rs 50 million for each Member of Parliament for development of their respective constituency through the ‘Constituent Development Program’ but NC member of parliament Gagan Thapa and the UCPN-Maoist members of parliament had opposed it stating members of parliament would not be able to manage such a large sum of money with accountability.

Rs 1.5 million Dr Mahat provided to each Member of Parliament were quite sufficient for each of them to compensate his/her election expenditure. Each one of them would have Rs 6.00 million by the end of their four-year term. They could enjoy the taxpayers’ money for their career development.

Dr Mahat allocated Rs 500 million for setting up a ‘Price Stabilizing Fund’ in partnership with the Nepal Oil Corporation (NOC) to smooth out the price fluctuations of petroleum products at the international market (Article 161). Whether the NOC would be able to smooth out the price fluctuations and supply the petroleum products uninterrupted remains to be seen. NOC had been asking the government for setting up the fund since long time.

Dr Mahat allocated Rs 86.03 billion (13.92%) for the entire educational sector (Article 199). Out of this total amount Rs 4.74 billion (0.77%) were for constructing schools buildings (Article 198), and Rs 6.52 billion (1.05%) for supporting the State-run universities (Article 197).

Dr Mahat said that he made an arrangement for providing the stipend of from Rs 1,500 to R 3,000 per month to each student belonging to dalit, chepang, and raute communities for studying from the secondary schools to the graduate schools. Students needed to secure a first grade at the school leavening certificate examinations to be eligible for the scholarships. Students also have to be studying at the community schools. The State will take up the entire expenses required for studying the bachelor’s degree-level engineering and medicines for the students belonging to dom, chamar and mushar of the dalit community (Article 192); and he allocated Rs 1.39 billion (0.22%) for literacy programs (Article 188).

Most of the school going children of the underprivileged communities just mentioned above had difficulty in having an access to the primary schools. So, providing stipend to the students for secondary to the bachelor level education, and free engineering and medical education would be only for the well-off people incidentally belonging to the underprivileged communities. If Dr Mahat were really sincere to providing free education to the underprivileged people then he should make sure that all the children of the underprivileged communities should be at primary schools so that they could go to the engineering or medical colleges later on.

Dr Mahat said that he allocated Rs 33.52 billion (5.42%) for the entire health sector; he anticipated it would lengthen the average life expectancy of Nepalis, and would reduce infant, child and maternal mortality rate (Article 205). However, the health delivery system had been the worst possible. Medical personnel such as doctors and qualified nurses had been rarely willing to serve in other parts of Nepal other than the major urban centers. The State had not been able to make the jobs at the district and regional hospitals attractive to doctors and nurses. Health centers and health posts had rarely any qualified health workers. Medicines intended for free distribution ended up staying on in the warehouse and expired their use date.

Dr Mahat said that he allocated Rs 3.61 billion (0.58%) for the poverty alleviation programs; the government would run 2,360 income-generating programs, and 850 infrastructure-building program through the ‘Poverty Alleviation Fund’ (Article 229). The government had been spending a large chunk of the State budget on training the poor believing that they would use the skills for earning a better living. However, they would not be able to use their skill without having the job opportunity. The job opportunity Nepalis have in foreign countries has been the main instrument to the poverty alleviation in Nepal rather than the State-run poverty alleviation fund.

He also said that he allocated Rs 55 billion (8.90%) for retirement payments to the State employees, and for running social security programs through various agencies (Article 230). Anybody could imagine how much national resources go to supporting the retirees, as the 8.90% of the total budget has been set-aside for the retirement payments to the retired State employees. Dr Mahat had been generous to the retired State employees but had been stingy not giving a rise to the senior citizens despite the clear need for it.

Dr Mahat said that making pay-off to the staffs, the government would liquidate the State-run corporations not competitive and not attractive to the private sector, and even borrowing to pay the salaries and allowances to the staffs (Article 249); the government would run the corporations in the public-private partnership (PPP) Public Enterprises, “where private sector is efficient and the involvement of the government is not necessary” (Article 250).

Dr Mahat said that the government would review the current provision for the foreign nationals required to declare more than US$ 5,000 or equivalent of foreign currencies at the Nepal custom point (Tax exemption and Benefit).

Dr Mahat also said that he would amend all the laws, rules and regulations that had hindered the development of the country (Articles 37-55). Dr Mahat has correctly perceived the need for amending the Nepalese laws, rules and regulations for expeditious development of the country. For example, Public Procurement Act of 2006 (2063) has been the money-making tool for the unscrupulous officials including the ministers, as they could add time and money to the construction work following the ‘variation order’ that had been the main reason for the cost overrun and the time overrun of development projects. Such Acts must be immediately amended.

Dr Mahat said that 49% of Nepalis had lived under the poverty at the beginning of the eighth periodic plan but currently it dropped down to 23.8%. He congratulated himself for reducing the poverty stating his liberal economic policy set in 1990s had been the main reason for it. As a finance minister in 1990s, Dr Mahat opened the door to the foreign employments for the Nepalese youths. The poverty had been reduced considerably because of the Nepalis having the employment opportunities in the foreign countries. However, Dr Mahat failed in mentioning the contribution of remittances to the socio-economic development not to mention the management of the remittances for the economic development.

The percentage of poverty has been tricky one. If we were to follow the government standard of poverty then Dr Mahat might be correct but if we were to follow the standard of the multilateral donor agency then we would get a different percentage. The government of Nepal believed in any Nepali having the intake of food that provided him or her with 2200 calories was above the poverty line. The government ignored the energy required for working to earn the 2200 calories.

Dr Mahat as a wise man ignored to say what was the year of the beginning of the eighth periodic plan forcing the readers of the budget to find out the year. What was the year of the beginning of that period plan was not so simple to find out for the Nepalis not to mention the foreigners. Dr Mahat also used both the Gregorian calendar and the Vikram calendar freely. It might be easy for him to understand both the calendars but for the majority of the readers of his budget would not be.

Dr Mahat proudly said that the state revenue had increased by 20% annually; so, the government had been able to provide most of the nationally important projects with the funding from its internal resources; the government also could increase its investment in the social sector and the security sector (Article 10). However, in the article 13 he said that the average economic growth had been only 4.1% per year in the past. It indicated that the government had been successful to extract money from the people as much as possible but the government had not been successful to use them properly for development.

In the article 15, Dr Mahat said that the general expenditure had increased by 70% during the last two years but the capital expenditures had increased by only 17%; the general expenditure had been mainly for the salaries, allowances, and retirement payments to the State employees.

The State had considerably increased the strength of the civil service, police and the army causing the tremendous rise in the general expenditure but the State had failed in using them for the economic development. Consequently, the economic development dragged on at 4.1% while the salaries and benefits to the State employees shot up considerably.

He also said in the article 23 that the bureaucracy had not been result-oriented, had not been investment and development friendly; some laws, rules and regulations had been obstructionists rather than being helpful to the development.

Dr Mahat said in the article 18 that the majority of the state-run corporations had been with problems. Out of the 37 corporations only 19 have been running in profit, the rest has either been reaching the stage of closure due to the lack of resources or running at the huge loss. He had hinted that he would prefer to shut down some of the state-rum companies, and improve some others a bit to sell them.

He had been for privatizing the state-owned companies. He could do so provided he could convince his governing partners of the benefits of the privatization. He should let die the sick industries rather than keeping them alive at the huge cost to the State. He should sell the corporations running at the profits, as they might give an added bonus to the State. He should take up the corporations with the problems, and then he should sort out the problems just to dispose them of in time.

In the article 30 he said that he had made the provision of Rs 1.22 billion (0.20%) for construction of a building, for providing the security to the women MPs and for the MP residence to expedite the crafting of a new constitution, and to make the parliamentary proceedings effective. However, he ignored to explain how the construction of a building, providing security to the women MPs, and the residence to the MPs would expedite the crafting of a new constitution, and the parliamentary proceedings would be effective.

He said that he had set-aside Rs 37.80 billion (6.12%) for effective implementation of the peace programs by the Home Ministry (Article 36). He also said that he had waived the debt of up to one million rupees taken by the people that had become martyrs, the interest and the fines on the loans taken by the people that had became the victims of the enforced disappearance, and the principals and interest on the loans taken for setting up businesses on the payment of the 25% of the loans if the businesses were destroyed or the entrepreneurs were dead; this provision would be applicable to the debts matured by the mid April of 2007 (Article 33).

Dr Mahat said that he would set up a ‘Start-up Fund’ to provide the funding to the entrepreneurs with new and creative ideas but not having funding to start up the businesses; the government would put Rs 500 million in to this fund (Article 42).

He offered to amend the different laws, rules and regulations to make them business friendly (Article 37-55). If Dr Mahat really could stood up to the challenges of the CPN-UML and amend the laws, rules and regulations that had been obstructionists, and make them conducive to the business then Dr Mahat would be the first finance minister that would open the country to the competitive businesses.

Finance Minister Dr Mahat would be the pioneer of development in Nepal if he were able to enforce all the provisions he had made in the budget for FY 2014.

First thing, he must do was to plug all the loopholes made in the laws, rules and regulations for the corrupt ministers, and officials to make money.

Then, he should stop the subsidy on the fertilizers. The subsidy had been for the officials including the concerned ministers to make money. The subsidy made the fertilizers cheap in Nepal. Fertilizers were of the high quality. So, Indian farmers were ready to pay even high prices for such fertilizers. Consequently, most of the fertilizers imported for Nepal went to India.

The subsidy on the fertilizers had negative impact on the agricultural development. Similarly, the land ceiling means limiting the land ownership had been another reason for not developing the agriculture. If Dr Mahat were really for the fast agricultural development then he should remove these two major hurdles. Then, he should help the exporters of farm products.

Dr Mahat needed to push the minister for urban development Dr Narayan Khadka for making sure that the construction of the tunnel for bringing water from the Melamchi River to the Kathmandu Valley was done on time. Dr Mahat would become a laughingstock if Kathmanduites were not to have water from the Melamchi River despite putting so much of money in this project. The contractor should construct more than a kilometer of the tunnel every month to make the water pass from the Melamchi River to Sundarijal in Kathmandu. Dr Mahat should be concerned with the slow progress in the construction of the tunnel.

Liquidating the non-performing state-owned corporations was the most right thing Dr Mahat considered to do. He needed to sell other corporations, too rather than running in the public-private partnership, as the corporations had drained the natural resources, and they had been the main tools for the corrupt ministers and officials to make money.

Dr Mahat should stop the handout programs, and stop setting up funds in various names, as they would use the taxpayers’ money without any benefits to the people in general.

ENDS

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